This syndicated post originally appeared at No Jitter - Recent posts by Zeus Kerravala.

Having Skype allows Microsoft to be more aggressive pushing UC and VoIP in the cloud.

Microsoft has confirmed that it is planning to buy Internet phone company Skype for over $8 billion ($7 billion plus over a billion in debt). It will be the largest acquisition Microsoft has made, trumping the $6 billion that Microsoft paid for online ad company, aQuantive, back in 2007.

So does the deal make sense or is it a desperate attempt to gain on Google in the Internet markets? There’s a tremendous amount of hype around Skype right now based on many events from the past few months. Longtime Cisco executive, Tony Bates, became the CEO, an IPO has been expected and there have been rumors of joint ventures with both Google and/or Facebook, so Microsoft could be making the move for defensive measures rather than offensive ones.

From a product perspective, there is a significant amount of overlap between Microsoft and Skype. Microsoft’s Live Messenger has all of the same functionality–chat, voice, video and file transfer. Microsoft claims to have over 300 million active users that utilize Live Messenger each month. The total number of users that have signed up for Live Messenger is a little misleading, since Microsoft makes you sign up for it when downloading certain software off the web.

Skype on the other hand reports having over 600 million users that have signed up for the service, but reports I have seen say that there are about 150 million active users each month, meaning its active base is about half of Live Messenger. Now, there are a couple of notable differences:

* Skype was built as a voice platform first, where Live Messenger was initially built for chat. I know both applications do the same thing, but for whatever reason, users tend to use Skype for Internet calling and then Live Messenger for text communications. I’ve used both and I think the quality of Skype voice is superior to Live Messenger’s voice, so it should give Microsoft a stronger voice platform to embed into applications.

* Mobile penetration. Many smart phones have Skype mobile on them, since it comes pre-installed on many. You can get Live Messenger for most mobile devices but Skype does have official partnerships with a number of mobile operators who endorse the usage of Skype to make calls. This could give a boost to Microsoft’s fledgling mobile strategy.

* Skype has approximately 8 million customers that pay for the calling service to call other Skype users but then also to call off-net (or Skype Out). Because of this feature, Skype has had to acquire a number of local phone numbers around the globe.

* At this year’s Enterprise Connect Skype launched its corporate phone service. Although it’s new and hasn’t gained a lot of traction, it is a platform that could be built on. Microsoft does have Lync 2010 to sell to corporations, but that doesn’t address the shift to cloud based communications.

This may seem a bit obvious, but what Skype brings to Microsoft is a faster path to cloud based voice. If you have followed my research and blogs over the years, you know that I believe that significant share shift only occurs when a market is in transition. Lync was supposed to address the shift of UC from a telephony platform to a unified communication system, but most research shows that despite the hype around UC, VoIP is still the main reason customers buy UC.

Skype would allow Microsoft to hedge its VoIP bet. As long as the primary UC application remains voice, Lync, despite the hype, will be on the outside looking in. There are more mature telephony platforms on the market today, meaning the market transition Microsoft has been waiting for may take longer to materialize than the company would like.

Having Skype allows Microsoft to be more aggressive pushing UC and VoIP in the cloud. Skype has been very aggressive with this message for years but in the overall picture, Skype is a niche company that’s small compared to many of the giant vendors that are in the voice and UC space. Microsoft, with its vast customer base and almost unlimited marketing dollars, can be the most aggressive mainstream vendor to push cloud based services since it has no installed base to cannibalize. This deal has a fair bit of overlap but the differences create some interesting possibilities.

The price tag of over $8 billion seems a bit high for the assets that Microsoft is getting, considering many thought the $2.6 billion that eBay paid was too much. One could argue that for $8 billion Microsoft could build much of what it’s getting from Skype, which is what Google seems to be doing, but Microsoft does get a time-to-market advantage and a brand name. Also, I’ve always felt if an acquisition is a good one then the actual price itself will seem irrelevant. If it’s a bad one then you can’t have paid too little. Only time will tell which one this is for Microsoft.

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Zeus Kerravala

Zeus Kerravala is the founder and principal analyst with ZK Research. Kerravala provides a mix of tactical advice to help his clients in the current business climate and long term strategic advice.
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